Foolproof module 10 test answers

Strategic Alliances

Part 1:

Read the closing case entitled “Emerging Markets: BP, AAR, and TNK-BP” (also see Emerging Markets 7.1) on pages 215-217 in your Global Strategies textbook, part of the assigned reading this week.

From an industry-based view, why are alliances a frequent mode of entry for the Russian oil industry? How does the global environment surrounding the oil industry in general change a firm’s interest in cooperating?

Remember to use in-text citations and list APA style references to support your response.

Part 2:

Respond to at least 2 other students’ original posts .. 50 words, Add value and ask question.

Student 1:

Considering the industry based view the main key task in this case is carry out a close examination of the forces which have a competitive effect on the industry and the main focus is on the available opportunities and also the threats to the industry. Considering the case of the oil industry in Russia, when BP and AAR collaborate, they form TNK-BP which is found to be of great importance to BP.( Hallberg, 2017) BP operates an industry in gas and oil and it is the third largest company. It operates by exploring, producing, refining, distributing and marketing petroleum chemicals and at the same time it also deals with generation of power. Investments in Russia are faced by risks which are both political and economical. Investors in the foreign markets are so much attracted to the good oil and gas products provided by this industry. Russia has an investment law which makes it easy for the companies from the foreign countries to form an alliance with oil companies in Russia with an aim of exploiting the oil resources. According to this law, the companies from the foreign countries have a mechanism of establishing themselves in the country by either using the offices issuing licenses, as a limited liability company or as a branch from the suppliers in the foreign countries. According to (Norman 2012), the countries from the west as well as the foreign countries they are allowed to enter the market using a Russian entry mode. Considering the industry point of view, it is much more logical and safe to work with a local partner as form of entity from the foreign country.

Russia developed this strategy of globalization as a means of controlling both commercial and financial flows internationally. Globalization was meant to enable Russia to manage its international market processes by enabling a strong link between Russia and it’s the world markets.

Thus globalization was key in shaping the world markets for Russia especially in the oil industry because it assisted in bringing a good link with the international markets which so much helped in bringing in foreign companies to help in exploiting the oil market and at the same time it also assisted in getting market for its oil products and this assisted in enabling the economy of Russia to grow better.

REFERENCES

Norman, J(2012). The oil card: The Global economic warfare in the 21st century. Irwin, McGraw-Hill.

Hallberg, P., & Virkkunen, J. (2017). Freedom of speech and information in global perspective. In Christiansen, B., & In Koeman, J. (2015). Nationalism, cultural indoctrination, and economic prosperity in the digital age.

Van, . M. J., Taylor, I., & Arkhangelskaya, A. (2016). Emerging Powers in Africa: A New Wave in the Relationship?. Cham: Springer International Publishing

Student 2:

Alliance or a strategic alliance refers to when two or more companies come together to share certain aspects, such as resources and insights for a cause that will benefit the duo or more companies which are involved in the alliance. Common examples of alliances include the alliance between KFC and Pizza. Overall, alliances serve to bring mutual benefits to all the involved parties (Considine & Kerr, 2002)

Why are alliances a frequent mode of entry for the Russian Oil? Industry?

As stated above, alliances are formed in order for the involved companies to be able to benefit from each other in terms of resources and so on (Moore & Longenecker, 2008). Oil drilling and extraction usually involve a lot of funds coupled with sophisticated machinery and equipment. When Russia seeks alliances for the oil industry it is usually due to the gaining of resources which would ultimately make it exploit the oil industry much deeper (Culpan, 2002). The alliances hence provide an easier way of getting hold of needed equipment in the country.

How does the global environment surrounding the oil industry in general change a firm’s interest in cooperating?

The global environment affects all of the oil operations. One of the major factors taken into account is the availability of a market for the oil produce. Other countries may generally mine the same oil but sell it at much more lower prices (Grace, 2005). The demand for the oil is also a great factor worth noting about the external environment, all of the above-said factors need to be taken into account thoroughly. Currently, the world market for oil has proved a worthwhile investment (Austin, 2000). A firm should therefore arrange to seek alliances since they have proven to be a good investment, more so if there is sharing of resources (Özel, 2014).

References

Austin, J. (2000). The Collaboration Challenge: How Nonprofits and Businesses Succeed through Strategic Alliances. Hoboken: John Wiley & Sons.

Considine, J. I., & Kerr, W. A. (2002). The Russian oil economy. Cheltenham: Edward Elgar.

Culpan, R. (2002). Global business alliances: theory and practice. Westport, Conn: Quorum Books.

Grace, J. D. (2005). Russian oil supply: Performance and prospects. Oxford: Oxford University Press for the Oxford Institute for Energy Studies.

Özel, I. (2014). State-Business Alliances and Economic Development: Turkey, Mexico and North Africa. Hoboken: Taylor and Francis.
Moore, C. & Longenecker, J. (2008). Managing small business: an entrepreneurial emphasis. Australia: South-Western/Cengage Learning

http://smallbusiness.chron.com/examples-successful-strategic-alliances-13859.html

Competitive Advantage in the Global Economy

Module 10: Strategic Alliances: Part I

Module Introduction

Readings

Required

Chapter 7 in Global Strategy Gupta, A. (2013). Strategic alliance: International business strategy (https://csuglobal.idm.oclc.org/login?url=https://search­ebscohost­ com.csuglobal.idm.oclc.org/login.aspx? direct=true&db=buh&AN=92741860&site=ehost­live). Asia Pacific Journal of Research in Business Management, 4(7), 1.

Recommended

Gammelgaard, J., Kumar, R., & Worm, V. (2013). Culture­led discrepancies and negotiating conflicts in strategic outsourcing alliances (https://csuglobal.idm.oclc.org/login? url=https://search­ebscohost­com.csuglobal.idm.oclc.org/login.aspx? direct=true&db=bth&AN=89806134&site=ehost­live). Thunderbird International Business Review, 55(5), 563­578. doi:10.1002/tie.21570

For Your Success

Strategic alliances are a fool­proof method for entering the global market… or, are they? While strategic alliances and partnerships lower risks and help companies work in unfamiliar cultures and locations, they demand that the partners fully resource the endeavor and create a plan for moving forward together.

For this week, you will review a case involving the Russian oil industry and examine the reasons why a company may choose a strategic alliance to enter this specific market. Think about the various political and economic factors at play and how they affect the risk calculations on the part of the oil companies. There will also be a Live Session this week. Your faculty will provide further details.

Learning Outcomes

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https://csuglobal.idm.oclc.org/login?url=https://search-ebscohost-com.csuglobal.idm.oclc.org/login.aspx?direct=true&db=bth&AN=89806134&site=ehost-live
Learning Outcomes

1. Explain why a firm may want to enter an alliance with a foreign firm. 2. Differentiate cooperation from competition and explain the benefits of each. 3. Describe the strategic rationale of cooperating at different points in the business process.

1. Defining a Strategic Alliance

Global business today is expanding, as we have been extensively discussing over the last several weeks. And as you have read before, a new business that ignores the global market does so at its peril. And, we need to dig deeper to understand exactly how a new business, or an existing business, can take its operations overseas. Last week we began to look at some models for expansion, including exporting, franchising, and opening foreign distribution networks. This week we need to consider another key factor in the expansion process – partnerships and strategic alliances.

A strategic alliance is a partnership between two or more firms to work together to confront the competition and expand each other’s market share, without actually entering into a formal partnership or joint venture agreement. This could be something simple, like a firm subcontracting part of its product development or distribution to another firm, or it could be something more substantial whereby each company invests substantially in the other, making their success dependent upon what the other does.

Review the many benefits as well as potential problems related to strategic alliances.

Benefits

First, the alliances’ partners share costs and hence, the upfront investments needed are reduced. Strategic alliances also will reduce and share risks. Moreover, by partnering with a local firm, your customers are more likely to view you as a local entity.

Potential Problems

There also are potential problems with strategic alliances. The costs associated with this model tend to be higher exporting, licensing, or franchising options. Additionally, there may be integration problems between two corporate cultures.

Take a look at this video of an interview with Michael Porter, the creator of the five competitive forces model:

Porter takes an interesting view of strategic alliances and partnerships. He points out that rivalry with your competitors can be turned into something positive. Many business people view competition as a zero­sum game ­­­ that is, there will be a winner and many losers. The only winner in a zero­sum game is the consumer, as the competitors end up in a price war. Porter, however, discusses the concept of positive sum competition. In this model, companies compete on different attributes and characteristics of the products and services and target different customer segments. So, instead of aggressively competing for a share of the pie, the idea is to grow the pie so that

(Source: https://www.youtube.com/watch?v=mYF2_FBCvXw)

An Interview with M. E. Porter, Professor, Harvard University. Porter's five competitive forces is the basis for much of modern business strategy. Understand the framework and how to put it into practice.

The Five Competitive Forces That Shape Strategy

So, instead of aggressively competing for a share of the pie, the idea is to grow the pie so that competitors can each carve out a piece. In a positive sum environment, strategic alliances will help companies expand globally and team with companies that may be competitors, but who act more like allies because all partners will benefit from the arrangement.

According to Czaja (2014), there are many successful partnerships across the globe. Take, for example, Eli Lily:

Eli Lily demonstrates how one company can create many partnerships on different continents with different purposes.

Eli Lilly partners with the Belgium­based company Galapagos to develop treatments for osteoporosis. Eli Lilly also partners with Canada's BioMS medical group in a licensing and development agreement for a novel treatment for multiple sclerosis. In Japan, Eli Lilly is partnering with Kyowa Hakko Kogyo Co., Ltd., to bring a targeted cancer treatment to market. Eli Lilly will have the exclusive license to develop and sell the product worldwide except in Japan, and the two companies will share rights in certain Asian countries.

2. Why Enter a Strategic Alliance?

Most firms, and especially small firms, lack the expertise, resources, or manpower to do everything that it takes to get their product or service to market. For instance, imagine you are setting up a small business that is going to sell a new e­book reader that fits into your shirt pocket. You came up with the idea and have some resources to invest in designing the product for market. What else might you need? You need a design company, perhaps a patent attorney to register the design, a manufacturer to build the product, parts from various places in the world, marketing materials, and

a distribution network, just for starters.

Rather than trying to take on all of this by yourself, you would likely be more successful in partnering with other companies that specialize in each of these areas. But not only that—you may find that some of these companies operate overseas with significantly lower labor and overhead costs, making your e­book reader cheaper to design and sell. You may quickly end up with the electronics portion of your product being developed in Malaysia, the software written in South Korea, the packaging designed and produced in Djibouti, and the marketing strategy put together by a company in the United Arab Emirates (U.A.E).

As your recommended reading this week stated, strategic partnerships like this benefit both parties, offering each an opportunity not only to participate in the development of a product, but also to exchange technology and knowledge that can be used in the development of other products. Of course, this can create a risk that the technology will be used to develop products that will compete with yours. For this reason, it is wise to try to keep the proprietary technology within the partnership and include contract language that would prevent it from being used to create competing products or sold to other manufacturers.

Whitler (2014) points out that forming the partnership actually is the easy part. The hardest part of strategic alliances, according to Whitler, is managing them over time. She writes:

Often times strategic alliances fail because: they are not resourced properly and fully; the partners do not spend enough time making sure that all partners are satisfied; and the partners never formalize a joint, strategic plan. So while strategic alliances make a lot of sense for a company that is new to the global market, there are many aspects to consider when entering into one. Whitler (2014) sums it up well:

In a recent study conducted by The CMO Council (for a complimentary report, click here (http://www.bpinetwork.org/thought­ leadership/studies/51)), 85% of respondents viewed partnerships and alliances as essential or important to their businesses. In today’s more complex world, where expertise is often gained through strategic relationships, this isn’t surprising. However, what was unexpected was that although strategic partnerships were rated as important, almost half reported high failure rates (failure rate of 60% or more). (para. 2)

http://www.bpinetwork.org/thought-leadership/studies/51
Take, for example, technology giant IBM. In 2012, this American company entered into a strategic alliance with Saudi telecommunications company Etihad Etisalat, better known as Mobily. According to the IBM website (n.d.),

The IBM Mobily Alliance is a joint collaboration aimed at bringing proven IBM intellectual capital, solutions, stringent processes and delivery capabilities to the Kingdom of Saudi Arabia. The Alliance brings cloud­based solutions that have been built in the Kingdom and designed to address the needs of clients in Saudi Arabia. To cover the need of larger enterprises, the Alliance will be able to deliver tailor­made solutions to cover specific client demands. (paras. 1­2)

Mobily gains access to IBM’s technology and best practices, and IBM expands its global reach and strengthens its presence in the Middle East in general, and Saudi Arabia in particular.

While all of this sounds simple, the likely issue is that employees and leaders are overwhelmed. They know how to develop strategic plans and manage relationships. But is there enough time in the day to get it all done? That’s why the first, most important question of leadership has to be whether the relationship is critical. If it is, it must be prioritized and resourced accordingly. (para. 12)

Test yourself on the key concepts covered in Module 10 in this brief quiz.

Click Here to Begin

Check Your Understanding

References

Czaja, J. (2014). Examples of successful strategic alliances. Chron. Retrieved from

Czaja, J. (2014). Examples of successful strategic alliances. Chron. Retrieved from

http://smallbusiness.chron.com/examples­successful­strategic­alliances­13859.html

IBM. (n.d.). IBM Mobily Alliance. Retrieved from http://www­935.ibm.com/services/sa/en/it­

services/mobily­alliance.html

Whitler, K. A. (2014). Why strategic alliances fail: New CMO Council report. Forbes. Retrieved

from http://www.forbes.com/sites/kimberlywhitler/2014/10/24/why­strategic­alliances­

fail­new­cmo­council­report/